“Our central scenario is that the ECB will also announce a long-term operation (of three to four years) restricted to certain categories of loans (e.g., those to small- and medium-sized enterprises), possibly with penalties if lending targets are missed. But, we think that there is a reasonable possibility that the ECB could announce ‘supply-led’ initiatives involving, for example, the purchase of asset-backed securities.”

RBS Credit Strategist Alberto Gallo:

“Will Mr Draghi pull a rabbit out of his hat? We think expectations may be too high. The point is, not all of Europe’s problems can be addressed by central bankers: low inflation is a result of prolonged austerity, and lack of credit transmission in the banking system. There are still too many banks in Europe, and many are still undercapitalized. As banks focus on strengthening their capital, it’s unlikely that an Long Term Refinancing Operation or any extension of liquidity would have a big impact: loans absorb capital, and capital is scarce. The good news is that the ECB is working on a real game-changer: an asset purchase program promoting securitizations and loans to small and medium-sized businesses, which create 80% of jobs in Europe. But it is unlikely that the ECB could implement this public-private purchase program before the stress tests, as the infrastructure isn’t ready. Draghi may not have the silver bullet this time around.”

“We do not believe the ECB can afford to do nothing this week after having intentionally raised hopes of further monetary easing. While the maximum impact from an ECB rate cut would come with a negative deposit rate and liquidity-boosting measures, […] there is no guarantee that negative rates alone would boost bank lending. However, credit easing measures are becoming increasingly likely, either indirectly, via LTRO, or directly, via private quantitative easing. Communication will be an important part of the June ‘package’. We expect ECB President Mario Draghi to leave the door open to unconventional action in case inflation fails to pick up by year-end.”

“We see small downside risks to the staff projections for growth and inflation for this year. In our view, previous ECB estimates of 1.2% and 1.0% look too high. But we are not expecting major revisions to the 2015/2016 estimates. As a result, we also don’t see the ECB embarking on a QE-style asset purchase program. Instead, we believe that targeted measures to unclog the bank lending channel, especially in the periphery, are more likely. But these measures might be more effective once the [Asset Quality Review] has been completed and hence might not be implemented at the June meeting.”

“Conventional options are a small interest rate reduction or FX intervention to weaken the euro. Unconventional options are also on the table ranging from negative deposit rates, funding for lending, another LTRO, all the way to outright quantitative easing. The challenge the ECB faces today is rather unusual. It is essentially a problem of the current inflation rate being too low. This risks generating deflationary expectations and thereby hindering a recovery which is by and large proceeding as the ECB forecast. Rather than set policy to achieve the inflation target in two years’ time, the challenge is to prevent or even reverse the recent run of negative inflationary surprises.”

Valentin Marinov, Citi’s head of G10 FX strategy:

“Some clients are discussing the prospects of FX intervention to cheapen the euro. We assess the risks of that as very low at present. The euro could remain supported by export revenues and portfolio inflows as a result. ECB could still push the single currency lower, however, with negative deposit rates expected to lead to more aggressive foreign hedging of long euro-exposure. Growing domestic demand on the back of ECB credit easing could also eat into euro zone’s trade and CA surplus and weaken an important euro-tailwind.”

Nick Matthews, economist at Nomura:

“[In addition to a small 10bp rate cut to all key rates] we also expect the ECB to announce a credit easing programme in the form of a targeted LTRO funding scheme to help address high interest rates charged on periphery corporate loans and provide an insurance mechanism against the risk of credit crunch. We see a risk that this is combined with a pre-announcement of the intention to commence an ABS purchase programme at some point in the future. However, details of such a programme would be limited given the current situation on both the regulatory and free-float front, which prevent the ECB from undertaking outright purchases at the current juncture.”

“We do not think that the ECB is about to launch a large-scale asset purchase programme, or QE, at this juncture, although some downward revision of its inflation forecast, especially for the near term, is likely in view of the low inflation prints over the past few months. Last week at the ECB’s Forum on Central Banking in Portugal, President Draghi highlighted the risk of a vicious circle between low inflation, falling inflation expectations and credit for the euro area. Draghi also repeated that the ECB was not resigned to allowing inflation to remain too low for too long. But he explained the current spell of low inflation with a number of temporary factors, namely a fall in energy and food prices that occurred together with a stronger euro exchange rate and relative price adjustments in stressed member states that are undergoing internal devaluation or may soon do so (France and Italy). Normally, these temporary factors would not warrant a monetary policy response. However, in certain circumstances, they can morph into persistent shocks, especially if they destabilize inflation expectations, which would call for pre-emptive action.”